• Agreement effective Tuesday and will last for three years
  • This is long-term policy to ensure stability: Bank Indonesia

Indonesia’s central bank has signed a 100 trillion rupiah ($7.1 billion) bilateral local-currency swap agreement with its Australian counterpart to bolster its defenses against potential market turbulence.

The accord, effective from Tuesday, will last for three years and can be extended if both sides consent, the Reserve Bank of Australia said in a statement. It’s designed to promote bilateral trade and will ensure that trade between the two countries can continue to be settled in local currencies even in times of financial stress, Bank Indonesia said in a statement.

The deal with Australia adds to similar agreements that Indonesia has with China, Japan and South Korea, while the Federal Reserve denied a request earlier in the year by authorities in Jakarta for a currency-swap line, according to an official with knowledge of the matter who asked not to be identified as the discussions were private. The rupiah has weakened 12 percent against the dollar this year in Asia’s second-worst performance and could come under further pressure if the U.S. central bank proceeds with an expected interest-rate increase this week.

“Fed or no Fed, rain or no rain, this is a long-term policy to safeguard stability,” Aida Budiman, head of the international department at Bank Indonesia, said at a briefing in Jakarta after the announcement. “The Aussie dollar is a global currency. We have had a long trade relationship with Australia and there is potential in the future.”

Trade Relationship

Indonesia and Australia had two-way trade worth A$15.7 billion ($11.4 billion) last year. The Southeast Asian nation buys wheat and live cattle from its southern neighbor, while Australia purchases petroleum from Indonesia and its tourists flock to the resort island of Bali.

The rupiah was little changed at 14,078 a dollar as of 11:58 a.m. in Jakarta, according to prices from local banks. The currency is forecast to weaken 4.2 percent to 14,700 by the end of next year, according to a Bloomberg survey. Futures contracts show a 76 percent chance the Fed will raise interest rates for the first time in almost a decade at its Dec. 15-16 meeting.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE